Taubman Centers' (TCO) Q3 FFO & Revenues Miss Estimates

Taubman Centers Inc. (NYSE:TCO) reported third-quarter 2019 funds from operations (FFO) per share of 88 cents, missing the Zacks Consensus Estimate of 89 cents. The figure also compares unfavorably with the year-ago quarter’s reported tally of $1.05.

Decline in comparable center NOI and rise in interest expense unfavorably impacted the results. However, higher ending occupancy in comparable centers provided some support.

Moreover, adjusted revenues, including rental revenues and overage rents for consolidated businesses, came in at around $145.1 million, missing the Zacks Consensus Estimate of $147.2 million. Nonetheless, the reported figure inched up 1.7% year over year.

Quarter in Detail

Comparable center NOI (excluding lease cancellation income and using constant foreign exchange rates) edged down 0.9% year over year. For the period ended Sep 30, 2019, the trailing 12-month releasing spread per square foot was down 1%.

Comparable tenant sales per square foot increased 11.2%, year over year. Trailing 12-month sales per square foot of $868 was up 12% as compared with the same period ended Sep 30, 2018. Also, average rent per square foot for the quarter was $56.03, marking 2.3% increase from $54.77 in the year-ago period.

As of Sep 30, 2019, leased space in comparable centers was 95.9%, inching up 0.1% from Sep 30, 2018. Additionally, ending occupancy in comparable centers of 93.4% at the end of the reported quarter was up 0.1% year over year.

Notably, in September, Taubman Centers closed the sale of Taubman Asia’s 50% stake in Starfield Hanam, located in Hanam, South Korea, to real estate funds managed by The Blackstone (NYSE:BX) Group Inc., for $300 million. Subsequent to the sale, Taubman now owns a 17.15% interest in the property. The company received net proceeds of about $240 million, which was used to pay its debt.

Liquidity

Taubman Centers exited third-quarter 2019 with cash and cash equivalents of $62.6 million, up from the $48.4 million reported at the end of December 2018.

Guidance

The company has revised its projections for 2019 FFO per share to $3.49-$3.59 from the prior range of $3.47-$3.57. However, adjusted FFO, which excludes 15 cents per share of year-to-date adjustments, remained unchanged at $3.64-$3.74. The Zacks Consensus Estimate for the same is pinned at $3.68.

The comparable-center NOI growth is projected to be flat to 1%, down from the previous guidance of 2%. This reduction in projection can be primarily attributed to unfavorable foreign-currency exchange rates and elevated tenant bankruptcies.

Our Viewpoint

Although Taubman Centers’ performance in the July-September period was not impressive, its sales per square foot went up 11.2%. This marks the company’s 13th consecutive quarter of positive growth.

The company’s solid retail real estate portfolios, high-quality retailers in tenant roster, and diligent restructuring measures have the capacity to support its long-term growth. Further, its efforts to implement cost-saving initiatives augur well. However, store closures and retailers’ bankruptcies are likely to act as headwinds for the retail real estate market for the next couple of quarters.

At present, Taubman Centers carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Companies

We now look forward to the earnings releases of other REITs like Macerich Company (NYSE:MAC) , Iron Mountain Incorporated (NYSE:IRM) and American Tower Corporation (NYSE:AMT) that are slated to report their quarterly numbers on Oct 31.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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